CFTC issues advisory restricting mention market event contracts

Investing.com -- The Commodity Futures Trading Commission released an advisory on Wednesday that will restrict most mention market event contracts. These contracts are tied to whether specific words are spoken or whether individuals attend particular events.

The CFTC issued a six-page advisory stating it presumes mention market contracts are susceptible to manipulation. Under the new guidance, issuers must prove these contracts are safe from manipulation before offering them.

Mention markets present heightened manipulation risks because certain individuals may know in advance whether the event will occur. Examples include contracts based on whether a specific phrase will be used on a podcast or during a televised event, as well as whether a specific person will attend an event.

The advisory stems from Core Principle 3, which requires Designated Contract Markets to only list event contracts that are not readily susceptible to manipulation.

The agency did not implement a complete ban on mention markets. Instead, it requires DCMs to rebut the presumption by demonstrating that independent obligations constrain controlling individuals, that the individual is not subject to external pressure, that independent verification of the event exists, and that robust trading rules, surveillance, and controls are in place.

The CFTC stated that because contract settlement may be controlled by a single individual, a small group, or persons with access to or influence over the individual whose words, attendance, or interaction determines settlement, its Division of Market Oversight staff may view mention markets as presumptively readily susceptible to manipulation.

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